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Tuesday, March 14, 2017

Thomas Piketty — Public capital, private capital

Piketty is writing in Europe for Europeans, whose countries gave up currency sovereignty to join the EZ. So while his analysis is not applicable to currency sovereigns like the US and UK, it is to EZ nations. While currency sovereigns face no exposure from public debt, states that are not currency sovereigns do face exposure and their public assets are at risk, as Greece goes to show.

However, Piketty doesn't notice this distinction.

Why be so pessimistic in the face of such prosperity? Simply because the ideological and political balance of power is such that public authorities are not able to make the main beneficiaries of globalisation contribute their fair share. The perception of this impossibility of a fair tax sustains the flight towards the debt. This feeling of disempowerment is reinforced by the unprecedented extent of economic and financial interdependence; each country is owned by its neighbours, particularly in Europe where there is a profound impression of loss of control.

Historically, major changes in the structure of property ownership often come together with profound political changes. We see this with the French Revolution, the American Civil War, the Euro-World Wars in the 20th century and the Libération in France. The nationalist forces at work today could lead to a return to national currencies and inflation, which would promote a chaotic redistribution of resources, at the expense of severe social stress and an ethnicisation of political conflicts. In the face of this fatal risk to which the present status quo could lead, there is only one solution. We must chart a democratic pathway out of the impasse and organise the necessary redistribution of resources within the framework of the rule of law.